Renters Caught When Banks Foreclose on Landlords

Wednesday, Aug. 5, 2008 | Late last summer, Robert Carreon searched online rental notices on craigslist.org to find a house for himself, his wife and their three kids. A description of a four-bedroom, three-bathroom house with a three-car garage in Oceanside caught his eye. The rent price for the 2,600 square foot house seemed a bargain: $1,900 a month. Comparable houses might rent for up to $1,000 a month more.

“My jaw dropped,” Carreon said. He called the number in the ad, checked out the house on his own and set up a meeting with the property manager, who was from Newport Beach. In late October, Carreon met with the man, whom he remembers as an older gentleman clad in a Tommy Bahama shirt, slacks, nice shoes and a gold necklace and watch. The man drove to their meeting in a Mercedes-Benz.

Carreon and his family moved in soon after that meeting. They’d lived there for just a few months when a detective from the Oceanside Police Department fraud unit knocked on their door. The detective told Carreon there was a search warrant out for the man he’d rented the house from. The man, Bob Decker, was suspected of stealing a college student’s identity and buying the house in the student’s name without his knowledge.

The steal of a deal that had caught Carreon’s eye quickly turned into a big mess.

The district attorney filed a case against Decker. Meanwhile, the mortgage payments lapsed on the house Carreon was renting, and he was served with an eviction notice: He had 30 days.

As a renter sucked into the vortex of the foreclosure mess in San Diego County, Carreon is among a growing number of tenants affected by what is often considered a homeowner issue. As much as one-quarter of the single-family homes in foreclosure in California have renters occupying them, according to an estimate from the California Apartment Association, an organization of rental property owners. That doesn’t account for tenants of foreclosed apartment buildings or duplexes.

The displaced renter adds another face to the column of victims of mortgage fraud. Those victims include the straw buyer who didn’t know his identity had been used to buy the house, the bank that was defrauded into making the loan in the first place and will lose money in repossessing and re-selling the house, and the owners of the neighboring houses, whose property values are affected by the activity at the house.

Such displaced renters are usually in the dark about the financial situation that led their landlords to foreclose. But Carreon has a window into the particulars behind his situation because of his contact with law enforcement in this case. More and more, unsuspecting tenants — some who decided to rent to avoid the instability of the region’s home prices — arrive home to a notice on the front door. They’re being evicted; their landlords have lost their homes. Now, the tenant population in the county is growing acutely aware of the financial solvency of landlords.

“It’s a bad situation for good tenants to be in foreclosed properties,” said Carlsbad eviction attorney James Burmeister. “A lot of these tenants are suddenly getting an eviction and then the tenant’s the one losing his house, with his family and his kids and his school district and paying his rent on time.”

Homeowners who live in their house are only entitled to three days once the bank has repossessed the house before they’re evicted. Tenants get at least 60 days to stay there, and they don’t have to pay rent.

“Even though it’s bad, it’s really not as bad as it sounds,” said local attorney Steven Kellman, who runs the Tenants Legal Center. “It’s kind of a soft landing. Some of them actually think of it as a benefit, because they can save up their rent.”

Gov. Arnold Schwarzenegger signed a bill into law in July to extend the amount of time such tenants are given before they must vacate the house from 30 days to 60 days. That gives tenants an extra month to save the money they would typically spend on rent and look for a new place. It also signaled an acknowledgement that when landlords can’t pay their mortgages, they’re unlikely to have the money to refund tenants’ security deposits, which are usually about one month’s rent.

“It’s technically not gone but you have to get it back from your landlord,” Burmeister said. “Given the fact that they got foreclosed, good luck getting your security deposit back from them.”

Carreon, the tenant in the Oceanside house, convinced Countrywide, his lender, to let him stay in the house at least until he testifies in the court case in the next couple of months. His wife and kids have left the state to stay with family.

“It’s just been a really big traumatic thing on our life right now,” Carreon said.

Charges against Decker include a series of grand thefts, identity theft and filing false documents. Four other defendants in the case — including a Newport Beach chiropractor who shared two of his patients’ personal information for purchasing houses in their name, notaries and a mortgage broker — have pleaded guilty. Decker goes to trial in September and if convicted, faces in excess of 10 years in state prison, said Stephen Robinson, the deputy district attorney who is prosecuting the case.

Charles Guthrie, attorney for Decker, said his client is innocent of those charges.

“People were selling houses very quickly, and everything was moving very fast, and maybe some negligent things were done by lots of people, but not him,” he said. “He may not have crossed all of the Ts, but they’re trying to say he knew there were frauds going on, and he did not.”

“If he was collecting rents, he was collecting rents because he thought he had the right to,” Guthrie added. “My client did not try to take money from someone that was illegal.”

That renters have become increasingly affected by foreclosure has caught the eye of a national homelessness advocacy group, whose recent report focuses on the “invisible victims” of foreclosure. A survey of homeless service providers nationwide reveals a growing number of applicants for assistance who were kicked out of their rental houses or condos because their landlords were in foreclosure. But no comparable local data have been compiled, said Rosemary Johnston, president of the Regional Task Force on the Homeless.

Kellman said he hasn’t seen evidence that tenants evicted from foreclosed houses end up homeless here.

“When tenants are stuck in the foreclosure situation here, they’re able to amass their money and they can actually leverage that for something better,” he said.

Kellman has seen a spike in calls from tenants whose landlords are in foreclosure, he said. His center provides some free information and some low-cost legal advice. Kellman attributed that trend to significant appreciation in the housing market this decade, where homeowners bought second or third or fifth properties with hopes of renting them out.

“We had new landlords, novice landlords, coming in and going out — they get to hold their property for two, three years,” he said. “But they were just visiting the land of landlords.”